Thanksgiving is just around the corner, and if you are at all like us, the rest of this year will be a blur—a mad-dash of decorating, prepping holiday feasts, braving the busy travel season, tracking down that perfect present and more. At times like this, essential housekeeping items can easily get back-burnered and forgotten, which can be problematic when it comes to your personal finances—as you may have some important tasks with yearend deadlines. Here, for your convenience, is a short checklist of things to make time for before the clock runs out.
Take your RMD.
Yes, for those age 72 and older with qualified retirement accounts—including traditional IRAs and 401(k)s—you must withdraw a predetermined amount each year and pay income taxes on it. If you fail to complete this required minimum distribution (RMD) by yearend, you will face an additional penalty of 50% of the RMD amount not taken in time.[i] So, if you haven’t taken yours, this would be a good time to get on it.
Your RMD amount will be your account value at last year’s close divided by your life expectancy as shown in the Internal Revenue Service’s (IRS’s) life expectancy tables. The IRS publishes this information and has a handy worksheet you can use to calculate how much you owe, but the brokerage firm housing your account (or your 401(k)’s plan administrator) should also be able to calculate it for you. When you request the distribution, you may elect to have taxes withheld, which could help you avoid having to scramble in April and reduce the risk of underpayment penalties.
Now, one unfortunate wrinkle this year is that if you have been invested in stocks and/or bonds, your account value is probably lower now than it was at yearend 2021, magnifying the impact of your distribution. For those hoping to have maximum market exposure when stocks and bonds rebound from this year’s downturns, we imagine this is frustrating. However, as we covered in some depth here, there is a workaround if you don’t need the distribution to cover living expenses: You can elect to take your distribution by transferring securities in-kind from your IRA to a taxable brokerage account. You will still have to pay taxes on the amount withdrawn, but you won’t have to liquidate your holdings and reduce your overall market exposure. (Your cost basis and holding period reset to the date of distribution.) But this does allow you to leave your funds invested for …….